by Garet Garrett, August 12, 1933

[Re-writer's note: Before reading this article from 1933, keep in mind that there was no income tax imposed upon the labor (wages) of American workers, even though the income tax had been in existence for 20 years. Neither was having a SSN a condition of employment. The average worker earned around $1000 - $1200 per year back then. Imagine, this could support a family at one time. But the most important thing about this article relates to the national emergency that began in the spring of 1933 and continues to this day. The vast majority people living today that were born in the United States were born and raised under emergency powers. Links to the Emergency Powers Statutes are on the home page.]


Social revolutions are, by nature, sudden and more or less incredible in the time of taking place. The intended consequences are two, namely, a transfer of power and a transfer of wealth. Formerly, the power to be transferred was political power; in the modern case it is economic power. But the essential design is in no way altered. Power of its own sake, political or economic, is not the popular object. People themselves cannot exercise it. They are obliged to delegate it to a dictator, reserving only the right to change dictators, even, if necessary, by another revolution. A redistribution of advantage and wealth - that is the popular object, and that is what the power is for.

By this definition, the country is in a state of revolution. It was unpredictable. When Congress assembled on March ninth, under an emergency call, no one knew what it was going to do, nor did it know itself what it was going to do, either at the beginning or day by day thereafter. It went from one step to another, with that kind of uncertain uncertainty peculiar to sleepwalking. It received the demands of the revolution serially in the form of pre-prepared laws, and enacted them with practically no debate and no drama. In the early morning of June sixteenth it adjourned. The entire life on the session had been one hundred days. That was all the time it took to erect a complete temporary dictatorship in the person of the President, standing for the popular will.

Afterward, giving on the radio a free White House version of current history, Louis McH. Howe, secretary to the President, said Congress all the time realized it was enacting laws that were leading "where no one knew," the "most amazing legislation this country or any other country has ever seen," but it had the courage to go on and it "wasn't afraid of the dark."

The powers transferred to the President were such, among others, as these:

1. To control and administer all business and industry in the public interest;
2. To govern production, prices, profits, competition, wages and the hours of labor;
3. To determine the economic policy of the country; that is to say, whether it shall be national or international;
4. To debase money in behalf of the debtor class;
5. To produce inflation in the interest of certain classes;
6. To reapportion private wealth and income throughout the nation, in his own judgement;
7. The power specifically to reduce the gold value of the dollar one-half - or, that is to say, the power, simply by proclamation, to double the price of everything that is priced in dollars, and to halve the value of every obligation payable in dollars, such as debts, bonds and mortgages, insurance policies, bank deposits.

It is true that these great powers are permissive and discontinuous. They expire under certain limits of time and circumstance, or when else the President himself may decide and proclaim that the emergency has ended. But this is only to say it is imagined that the popular object may be achieved within the existing frame of government. A temporary dictatorship to effect the transfer of wealth. Then constitutional government again.

The great motive was never concealed. As Congress stamped the laws and decrees that transferred the power, it knew perfectly what use of them was intended. The Agricultural Adjustment Act was expressly designed to give farmers a larger proportion of the total national income, by means, partly, of direct cash subsidies from the United States Treasury, by further means, partly, of taxing consumers of food for the benefit of the producers of it, and by the greater means of inflation, the Government so to manage inflation as to make agricultural commodities rise faster than anything else. But that was not enough.

Provisions of the Thomas Amendment

To the Agricultural Adjustment Act was added, suddenly, the Thomas amendment. It had nothing to do with agriculture as such, but much to do with the grand social motive. This amendment, purporting to transfer to the President the constitutional power of Congress to coin money and regulate the value thereof, authorizes the President, in his discretion (a) to print $3,000,000,000 of paper money and exchange it for any interest-bearing obligation of the Government: (b) to fix the value of silver in relation to gold and print silver certificates and (c) to reduce the gold content of the dollar by not more than one-half. This amendment, as a tail to the Agricultural Adjustment Act, represented the ultimate demand of the revolution. It was sponsored by the Administration and then moved in Congress by the following statement from Senator Thomas:

"Two hundred billion dollars of wealth and buying power now rest in the hands of those who own the bank deposits and fixed investments, bonds and mortgages. . . . .If the amendment carries and the powers are exercised in a reasonable degree, it must transfer that $200,000,000,000 in the hands of persons who now have it, who did not buy it, who did not earn it, who do not deserve it, who must not retain it, back to the other side - the debtor class of the Republic, the people who owe the mass debts of the nation."

Many thousands of bank depositors who had thought their security was one of the new Government's principle anxieties might well have been dazed by this magnificently frank statement of the motive, even more by the fact that a law under which half the value of their bank deposits could be destroyed was wanted by a Government that was supporting, at the same time, a law to guarantee bank deposits; but they were already numb, and, in any case, trapped. What could they do? Suppose they took their money out of the banks again. That would not save it. It is the peculiar terror of inflation by debasement of the currency that it devours the value of your money whether you leave it in the bank, carry it in your pocket or hide it in the cellar. The only money that is immune from destruction is gold money, but that door of escape was already locked by a law making it a crime to have gold in your possession.

In a revolution it is not the rational mentality that acts. The fact of revolution, like the fact of war, is itself the evidence that reason has failed. What then? With or without solutions of reason, still people must go on. Well, then the go on by instinct and feeling, by trial and error, mistaking visions for reality, confusing idea with fact, until, by some process we do not understand, they find once more the way of reason, which may be either the old way again or a new way.

Reason had not solved the crisis; and although the crisis may have solved itself, as had happened before, even if that happened again there would remain the liability to crisis, like a principle of evil in the economic affair; and the thought of this had become intolerable. Science, invention and technology having involved modern society in the colossal frustration of being apparently unable to buy and absorb the satisfactions produced by its own mass labor, it was natural for a long time to suppose the existence of a rational solution, if only we could think of it. Should we come to within sight of unlimited plenty only to be stopped by the frightful enigma of unemployment? Reason deeply had been saying no. It could not admit the possibility that we should be unable in a rational manner to manage the forces of production that we ourselves set free. All the same, the intellectual faculty proposed no way out, or, rather, it had proposed too many, which is the same thing and worse confusion. It needed more time; it needed more data of experience. Meanwhile, the crisis deepened. The old economic mentality wen bankrupt. We seemed to be approaching economic chaos.

Resort to the Method of Trial and Error

Naturally, in these circumstances, there will arise a demand for action. Nobody knows what to do. Nevertheless, let something be done. Irrational as it seems, this appeal from thought to action may represent a kind of collective wisdom superior to reason. The source of it will be human faith in trial and error. Every new way has been so discovered; the reason afterward has verified it.

Therefore, a time may be when people turn to a man not for his mentality, not for any plan he may have - since the trouble is that there is no plan - but for some quality of experimental boldness they feel in him, and give him an unlimited mandate to act. He is not to lead them really, for they have yet no sense of direction; he is only to embody their will to act by method of trial and error. He will make many mistakes. The critical faculty will be inhibited from dwelling too much upon them. He was expected to make mistakes, error belonging to the method.

And so it may be as the action proceeds that one will be torn between, on the one hand, convictions of reason that are outraged in many particular ways and, on the other hand, a sense of respect for the historical process. For once in the whole age of that process a social revolution could take place without the crashing of one wall, the gathering of one mob, the breaking of one human head. No force was needed when there was no resistance, nor anything rigid to be destroyed. The national mood was experimental. Almost anything could happen, except only a thing of violence.

In these reflections it must appear that use of the critical faculty is limited. For constructive criticism of the laws and decrees that were stamped by a Congress not afraid of the dark it is already too late. The facts are accomplished. For criticism of the dictatorship so created is yet too soon. There is no record.

Moreover, the critical faculty requires perspective and a point of view, and in the present confusion there is neither. To distinguish between the false and the true event is impossible. Here is history adumbrating, casting its shadows before it, and the shadows are all flat in one dimension, like the news of a night as it comes to the desk of a managing editor. By emphasis of headline, topography and position he may raise it into faint relief . The next day the editorial writers may raise selected bits of it a little more. Years later, if it was important, we may begin to know what the news meant. Who now can say what anything means? Who can say what will or will not work. It is people who make anything work, and people at last are unpredictable.

All that seems presently feasible, therefore, is to name the conditions under which we arrived suddenly and almost unawares at a temporary dictatorship and then to define what it was that happened.

The first condition was a national neurosis. Fear was inn control of behavior. The great compulsion was fear. It was fear of irretrievable loss, fear of sinking, fear of tomorrow, fear of people, and, at last, fear of fear. This the President said in his inaugural address from the Capitol steps, on the fourth of March: "The only thing to fear is fear itself, nameless, unreasoning, unjustified terror."

Attacking the Nightmare of Fear

His first official act was to suspend banking operations throughout the whole country for a period of days, by decree, to everybody's instant relief of mind. People were not afraid to be entirely out of money in a land of plenty. Their common sense saved them at that point. But the fear of losing their money before it was lost caused them to behave as at the deluge.

Then immediately in this nightmare of fear two intentions began to move. One was the simple, direct intention by any means, legal or extra-legal, to deal with the crisis as a national emergency. The other might be called the ideal intention of an academic mentality that surrounded the President, pleasantly named the Brain Trust. This was a complex intention, acting with the other on the emergency, but acting upon it in an oblique manner from a very high point of view. One who could get that point of view would see, not restoration, not prosperity again as it was or ever had been before, liable to crisis and mocked by frustration, but in place of that a complete new order, scientifically planned and managed, the individual profit motive tamed by government wisdom, human happiness ascendant on a plotted curve. This complex intention, as may be supposed, had great fertility of ideas, and for that reason, among others, it overwhelmed the simple intention, which had no new ideas at all. The academic mentality wrote the laws and decrees, the President approved them, The Congress stamped them, and there was the spectacle of conservatives, liberals, radicals and demagogues walking in step toward something no one was sure of, moved by opposite reasons, some in the dark and some in a new light of their own making, invisible to the rest.

This kind of strange, unreal companionship in action is perfectly illustrated by the variety of conflicting motives that urged the idea of inflation, which came to be the central idea. Who wanted inflation and why? All distressed debtors, naturally, because it would cheapen the money with which debts are paid, and that determined the attitude of the agricultural interest. The farmer's buying power will not be increased if all prices rise together, but his power to pay debts - that will be increased because interest and principle do not rise; they are fixed in dollars, and as the dollar is cheapened by debasement the debt is by that measure reduced.

All those who believed that a rise in the general price level, even though it was artificially produced by a dangerous debasement of money, would turn the tide, and that once the tide was turned we should be able to stop inflation and suspend its evils - they were for it. The favorable attitude of business toward inflation was so determined. These talked of controlled inflation, or called it reflation and said if only prices could be restored to normal - normal being anybody's x - the sick economic body would begin to revive, and if the drug of inflation would do this, why hesitate to administer it for fear the patient would become an addict.

It was amazing, too, what hold the idea of inflation gained in the world of finance. Inflation would make good again the deflated capital of corporations, the genial warmth of it would unfreeze the assets of troubled banks, it would restore to great financial institutions, such as life-insurance companies, the vanished value of their assets - always provided it went only so far as to produce these blessings and no farther, and provided it could be scientifically controlled, for, of course, if it got out of wisdom's hand it would destroy many of the very things it was designed to restore.

But on the same step with these toward inflation were others who saw only and clearly the power of it as a social instrument and how, once control of it was set in the popular hand, it could be employed to redistribute the nation's wealth and income. Even here was division. The demagogic mind was thinking only of transferring wealth by a primitive rule. The academic mentality, with its higher point of view, was thinking how the power of inflation - or, that is to say, the political power to regulate money and credit - might be employed, not simply to take and give, not simply to ruin creditors for the happiness of debtors, but to control the distribution of the nation's wealth and income symphonically, for purposes of the new order. These wrote the law of inflation and took care to put plenty of power in it. Control belongs to the complex intention.

But all of that was later, the embracement of inflation was something that happened. There is more to say of the conditions under which everything happened.

A Time for Action and More Action

The first problem, of course, was to exorcize fear. The bank holiday, the gold embargo, the decree against hoarding - these were bold strokes. Fear as a national neurosis began at once to recede. A people of action may be so comforted by action. They began to say that now something would be done. They did not know what. The Congress that had been assembled did not know what. There is reason to believe that neither the President nor the academic mentality surrounding him knew exactly what. But a curious inversion of fear took place. The national neurosis having begun to subside at the first onset of action, the thing obviously to do was to follow action with more action, swiftly, and there arose, very distinctly, in Washington a real fear of inaction.

There was no program. There was no time to think one out. Yet action was imperative. Therefore, the materials of action, that is to say, the ideas, had to be assembled in haste. Most of them came from the one fertile and inexhaustible source, namely, the academic mentality. Ideas fell into sets under rough subject headings, such as farm debt, home debt, agriculture, unemployment, money, and so on.

These ideas were then crystalized in conference tubs under the catalytic day-and-night eye of the appropriate academic mentality; and as fast as by this process a crystal took form it was sent up the hill to Congress.

Prof. Raymond Moley, Assistant Secretary of State, the President's most intimate adviser, commonly identified as head of the Brain trust said at this time: "We are conscience of the danger that there is so little time to think."

It is thus explained why the legislation that ensued, regarded as a whole, was so formless and unschematic, and why the most important acts represent simply grants of power to the President. It was power for him to use as he would or could, for any program that might at length develop.

Congress, too, had been seized with the fear of inaction. Many members, secretly groaning, , supported measures they did not believe in because, they were afraid to delay or obstruct action, afraid not to go along, afraid to be afraid of the dark, or afraid to disappoint the emotional expectations that were rising from the people to a President who was saying: "Action and action now!"

There was no stultification in it. Even those members of Congress whose personal convictions were appalled by what they were doing were thinking and saying: "To change the nation's state of mind is desperately more important than the means we take to change it. Any means to do that. If not these means, what others? We do not know."

The Brain Trust at Work

Such acquiescence in the heart of a Congress reacted with a certain effect upon those who were writing the acts of the new order. Ideas more and more daring went into their conference tubs, and the crystals sent up the hill in haste, marked by or for the Administration, were more and more astonishing. On the floor of the House one member exclaimed: "In some cases bills have been passed before they were printed, before any copies were available even for the leaders of the House or members of the committees sponsoring them, without anyone knowing what they contained. These bills were passed under special rules which made the House of Representatives merely a rubber stamp to furnish the necessary legality to the desires of the executive branch of the Government."

There seemed to be nowhere any resistance. Finance, business, industry, agriculture, creditors and debtors, capital and labor, all on one millennium step. That was not quite so. The academic mentality, becoming aggressive after its authority increased, learned how to silence opposition. If a sound of protest came from any part of the old and vanishing laissez faire world there was a voice in Washington to say: "Any opposition to this bill from you will only cause a worse one to pass in place of it. We who write these laws are neither radical or conservative. We are doctors. We do not want Congress to go off the lot, for that would spill everything. But your opposition may provoke it beyond our control." Thus a great deal of protest was silenced in private.

And then as it appeared that the laws were inevitably to pass and that to administer them would require a vast dictatorial bureaucracy, there arose in the field of business a fear of is bureaucracy-to-be and what it might do to those from whom obstruction or offense had come beforehand. Thus, at last, a secret fear of dictatorial government. This intensified steadily as more and more arbitrary power passed to the executive arm and as the doctor spirit that would inhabit the administration of power began to reveal itself by utterances in print, on the radio and in private conversation. It was a lawless spirit, not, of course, in any bad sense, rising only from a kind of exalted impatience toward any law that might be invoked to mar the good design. To anyone who said such an act as this one or that one was unconstitutional and would be so held by the Supreme Court, the answer that became current was: "Those who imagine the new order can be defeated by an appeal to the Supreme Court on the Constitution will be disappointed. Do they think the Government, having gone so far, would hesitate to give the Supreme Court a new mind?"

Such were the conditions under which this country embraced a dictatorship, with no conscious intention, no serious debate about it, by implied consent, all in one hundred days.

Now as concerning what it was that happened in these circumstances, namely, the acts. They are, after all, few by title, and fall into three categories. In the first category are the acts of immediate relief, such as:

First, the Wagner-Costigan-LaFollette bill making an outright grant of $500,000,000 to the states for unemployment relief;
Second, an act creating the Civilian Conservation Corps, to give 250,000 men work relief in the national parks and forests;
Third, an act creating the Home Owners' Loan Corporation, with $200,000,000 capital supplied by the United States Treasury and authorized to issue $2,000,000,000 of bonds, guaranteed by the Government, for the purpose of buying up distressed mortgages on small private homes, not exceeding $20,000 value each, and for the purpose, besides, of lending such small homeowners the money to redeem their homes in cases where they have already lost them by foreclosure, and to pay their taxes;
Fourth, a new agricultural credit act, going further than any act of the kind before, providing that $2,000,000,000 of bonds, guaranteed by the Government, shall be issued by the Federal Land Bank System for the purpose of buying up distressed farm mortgages to save indebted farmers from foreclosure; providing, besides, that a new official named the Farm Loan Commissioner shall lend farmers $200,000,000 of Government money for any necessary purpose, and then appropriating $100,000,000 to be loaned to the private Joint Stock Land Bank System so that it can afford to stop foreclosing farm mortgages.

The Reform Measures

In the second category are the reform acts, such as:

First, a very drastic bill called the Securities Act, forbidding foreign and domestic securities, stocks or bonds, to be issued and offered for sale to the public except they are first registered at Washington and submitted to unlimited Government scrutiny, with very severe personal penalties for the slightest misrepresentation or the omission of a single essential fact - government securities, state and municipal securities, the securities of building and loan associations, railroad securities authorized by the Interstate Commerce Commission, receivers' certificates and one or two other minor kinds only to be exempt;
Second, the Banking Act, which enormously extends Federal authority over banking, by let and hindrance, and provides, besides, for a guaranty of private bank deposits by a Federal Corporation to which the United States treasury contributes the first $150,000,000 of capital and the baks the rest up to one-half of 1 per cent of their deposits, after which the Corporation may issue bonds to an intermediate amount, estimated not to exceed the familiar magnitude of $2,000,000,000;
Third, the Railroad Act, creating a Federal railroad coordinator to sit on the railroads and, if possible, to rationalize the transportation system;
Fourth, the economy bill, giving the President the power, if he dared, to fry $1,000,000,000 out of the Government's ordinary annual expenditures and to deflate the nation's account with its veterans.

Standing alone, a category to itself, is the act creating the Tennessee Valley Authority, with power to issue bonds on the credit of the Government, for the purpose of operating the Government's nitrogen-fixing and hydroelectric properties at Muscle Shoals, Alabama, and with a mandate beyond that to develop the whole Tennessee valley, agriculturally, industrially and socially, in an ideal manner.

In the Name of Emergency

All of the acts in the two proceeding categories, including the unplaced Tennessee Valley Authority Act, are relatively simple. Extreme as they may be in many particulars, they represent, nevertheless, the traditional exercise of the legislative function.

But now the third category. It contains the acts extraordinary. They are three by name, as follows:

1. The Agricultural Adjustment Act, which carries under a subtitle the Thomas amendment;
2. The Joint Resolution abrogating the gold clause in all public and private contracts;
3. The Industrial Recovery Act, which carries under a subtitle the great Public Works Act.

Each of these acts begins with a phrase that means simply "By legality of the emergency." One declares a national emergency to exist, another that in view of the declared emergency, and so on, and another that whereas the existing emergency discloses a certain difficulty, now therefore be it resolved, and so on. Such theory of law as underlies them is that Congress may say a national emergency exists and then proceed in all matters as if the country were at war. The difference between a state of war and an economic emergency, of course, is that one comes to its own end in a definite manner, whereas no one is competent to say how long the other may last, nor is it possible for anyone to say precisely when it ends, any more than to strike a line in the dawn to divide night and day.

The whole of this legislation is, of course, experimental; but it appears that the whole of it was not at any one time intended. It grew by unexpectedness, one thing obliging another.

In the naive heaven scene of the play, The Green Pastures, the Lord coming to the fish fry is not pleased with the liquid refreshments. They tell him gently what the trouble is. There is not enough firmament to put in. He said he is tired of hearing always this excuse that firmament is scarce. For once he will make enough. And so he commands a miracle of thunder, lightning and rain. Presently voices all around begin crying: "Lord, Lord, there is too much firmament!"And the Lord wearily answers: "That's it. If you pass one miracle you've got to pass another. Now I have to pass a miracle to get rid of this firmament." So he passed another, which was to create the world, with mountains, valleys and rivers to drain away the surplus firmament. Solving one problem created another. That has been the experience of the doctors at Washington.

The first great crystal out of the conference tubs was the Agricultural Adjustment Act. It evolved from one imperative and many ideas. The imperative was that the purchasing power of the farmer must be restored to what it was when for once agriculture was moderately contented. That was in the last four years of pre-war time, 1909-1914. But since all prices have changed since that time, how shall it be determined what prices it will now be necessary for the farmer to receive in order that his buying power shall be again what it was then? That is done statistically. Find how many bushels of wheat or corn or how many pounds of cotton, tobacco or hogs to buy a given quantity of manufactured goods in the years 1909-1914. Then prices for wheat, corn, cotton, tobacco, hogs, and so on, must be raised until the same quantity of any of these will exchange for the same quantity of manufactured goods as in that happy five-year period. That is what is meant by parity prices for agriculture, and agriculture's right to have its buying power restored to that arbitrary parity is predicated on the ground that the country as a whole cannot prosper until the farmer is prosperous.

It is therefore in the public interest, first, that the farmer's share of the national income shall be increased to what it was in the remembered time of his contentment, and second, that it shall never again be less. If manufactured goods rise in price, agricultural prices must rise just that much more, to maintain the parity.

Very well. How shall such a thing be done? First of all, production must be limited. The whole trouble is from excessive production at ruinous prices, and if now prices are raised by law, if farming is made more profitable and nothing is done to restrain it, production will increase beyond any reason. But it is well known that exhortation and propaganda are powerless to make farmers limit their production. Therefore, now they must be paid to limit it. Every other way has been tried.

The Agricultural Adjustment Act

Thus the idea crystallized - and the law is as follows: The consumer shall be taxed on all such basic commodities as wheat, corn, rice, hogs, tobacco, dairy products and cotton, and the proceeds of the tax shall be paid over to the farmer provided he will agree to limit his production as the Department of Agriculture may suggest. The Secretary of Agriculture takes authority over all millers, packers, dealers in and processors of, agricultural commodities - firstly, in order to be able to oblige them to collect the tax, and, secondly, in order to prevent bootlegging of agricultural commodities. The amount of the tax shall be whatever is necessary; it shall be fixed by the Secretary of Agriculture. His power over farmers is not dictatorial. The law says he must engage them only in voluntary methods. But he had dictatorial power over all the means whereby agricultural commodities are converted for use and consumption, and the power to decide how much the consumer shall be taxed for the benefit of farmers, in the public interest.

But now a new problem. If the plan works, agricultural commodities and all manufacturers thereof, such even as cotton goods, will be so much higher in this country than anywhere else in the world that the existing tariffs will not prevent imports. We shall be tendered dour over the tariff wall, butter from Scandinavia, cotton goods from Manchester. The American cotton manufacturer, taxed for the benefit of the cotton farmers, will be unable to compete with the British cotton manufacturer who buys the same American cotton, but who is not taxed on it for the benefit of the grower. It follows that the protective tariff against foreign agricultural commodities and all manufacturers thereof must be increased by the amount of the tax, else imports will swamp the plan.

The Power to Inflate

So a provision for increasing the tariff by the amount of the tax, whatever it is, went into law, and a complete form was about to crystalize when another idea was hurled into the tub with a great splash. What of our foreign trade? What of the idea that the future prosperity of Agriculture, and of the country as a whole, lay in a great revival of our export trade? An American delegation going to the World economic Conference resolved to break down other people's trade barriers against our agricultural exports, and we at the same time raising our barriers against them. Did that make sense? To tax consumers in order to pension idle land and to pay farmers not to produce must be considered a temporary solution only, and even if it could go on forever, and suppose you did, by that means, increase the farmer's everyday buying power, he would still be debt as before. That problem would be unsolved. Was it proposed to enable him to carry his debt burden forever, or to ease him of it? Why not cheapen the dollar? That would cause prices to rise, commodity prices immediately more than other prices, perhaps, which would be as it should be, and it would at the same time reduce the farmer's debt burden. More than that, to devalue the dollar as the British had devalued the pound sterling, would enable this country to recover the foreign trade it had been losing to Great Britain and other depreciated-currency countries.

Once the idea of inflation was added to what was working in the conference tub it became the controlling chemistry. This fact, apparently, did not alarm the doctors, or perhaps they did not have time to consider its implications, for they kept saying, "Very well, then, but it shall be controlled inflation, lying in the hands of the President," as if, when you had been unable to control the idea of inflation in the laboratory you could still expect to control inflation itself after it had begun to act.

Thus it was that into the Agricultural Adjustment Act, purporting to be a piece of emergency legislation, there came to be written an amazing money act, namely, the Thomas amendment, investing the President with power, in his discretion, to devalue the dollar by as much as one-half, and, if that were not enough, then further to inflate the currency by billions of paper of paper money into the baking system, this by the simple procedure of printing the money on the Government's press and swapping it for Government bonds outstanding in the hands of the banks.

And how shall this power be used? The act says it may be used, in the President's judgement, for any or all of the following purposes: (a), to match the debasement of currency by our rivals in foreign trade, Great Britain principally in mind, though not mentioned; or, (b), to meet our world competitors in an agreement to devalue money all around and thereby lift the whole world's price level; or, (c), to raise prices in this country by credit and currency inflation and let the world go hang.

Here is confusion. It is true that by leaving the gold standard and letting the pound sterling fall one-third in foreign value, Great Britain did gain an advantage, at least a temporary advantage, in the export trade of the world, at the immediate expense of gold-money countries, particularly this one. But, in the first place, Great Britain did not leave the gold standard deliberately. She was obliged by necessity, and having been obliged to leave it she was able to gain this advantage in foreign trade precisely because she permitted no inflation to occur in England. Prices did not rise in England. If prices had been permitted to rise in England as the foreign value of the pound sterling declined outside, there would have been no advantage at all; the only way in which possibly she could then have increased her exports would have been to sweat her labor. But because prices did not rise in England the fall of one-third in the foreign value of the pound sterling had the effect of cutting prices to her foreign customers one-third. That is, instead of cutting the price of a bolt of cloth one-third to a foreign customer the pound sterling to buy that bolt of cloth was cheapened one-third in the world of international exchange, and it comes to the same thing.

This country was not obliged to leave the gold standard. Deliberately to debase the value of the dollar in order to stimulate foreign buying of American merchandise was a daring idea. Yet it made sense, and it might work, for a while at least, provided there was at the same time no rise in American prices. But if American prices rise as the dollar declines the inducement to the foreign customer is canceled and the effect upon foreign trade is nil. We should be, with one hand, giving our foreign customers a cheaper dollar to buy with, and, with the other hand, raising prices against him in the same measure. Therefore, to propose debasing the dollar both to attract the foreign buyer and to inflate prices made no sense whatever.

The Dollar's Gold Content

However, it was the intent of the law not really to say how the power should be used but to leave the President free to use it for any purpose. His own idea of what he should use it for was one not stated in the act. After having received the power he said, May seventh, on the radio: "The Administration had the definite objective of raising the commodity prices to such an extent that those who have borrowed money will, on the average, be able to repay that money in the same kind of dollar which they borrowed. We do not seek to let them get such a cheap dollar that they will be able to pay back a great deal less than they borrowed."

That is to say, heroic amends between debtor and creditor. The difficulty, of course, is for a Solomon to say what is justice is and to whom it shall run "on the average." The Government itself is now the colossal borrower. What the people who, even as the President was speaking, were supporting the Government's credit by putting their money into Government bonds? Would they be paid back in the kind of dollar they were lending or in a dollar devalued by the Government? What of the people who at the urgent solicitation of the Government had just brought their money back to the banks? Would they receive back the kind of dollar they brought or a dollar the value of which had been halved?

When the Agricultural Adjustment Act had been passed, Thomas amendment and all, a new problem appeared. The power of the President to halve the gold content of the dollar was embarrassed by the fact that all the outstanding obligations of the Government, bonds, certificates, and so forth, were payable in "gold dollars of the present standard of value." It was thought absolutely necessary to repudiate this contract between the Government and all its bondholders, for else when the gold content of the dollar had been reduced there would be endless confusion. Two kinds of bonds - old dollar bonds and new dollar bonds. Two kinds of money - old dollar money payable by the Government according to the contract, and new dollar money current in the new order. Then the further problem: If the Government alone repudiated that contract, what of billions of private gold bonds existing - railroad and corporation bonds - payable in gold, by terms of the contract, ion a country where it was forbidden to have gold in one's possession?

Getting Round the Constitution

This entire problem was imaginary, really. Bondholders normally do not want gold in redemption; they want only gold-standard money. Nevertheless, the next act was a joint resolution by Congress declaring the gold clause in all cases to be a thing contrary to public interest, because it obstructed the power of the Government to regulate the value of money; and on this ground it was made invalid and illegal, as to every kind of obligation, public or private.

The argument for the legality of this act fairly exhausted the kind of sophistry now current. In the Constitution it is written: "No state shall. . . pass any. . . law impairing the obligation of contracts." But the Constitution does not forbid the Federal Government to impair the obligation of contract; therefore, it may legally do so, though for a state it would be illegal and unconstitutional. Yet everyone must realize that when the framers of the Constitution forbade only the states to impair the obligation of contract they did not mean to leave the Federal Government free to commit that offense; the only reason they did not forbid the Federal Government to do it was that they could not imagine the Federal Government wanting to do it.

The President expounded the matter in these words: "In the past the Government has agreed to redeem nearly thirty millions of its debts and its currency in gold, and private corporations in this country have agreed to redeem another sixty or seventy billions of securities and mortgages in gold. The Government and private corporations were making these agreements when they knew full well that all of the gold in the United States amounted to only between three and four billions and that all of the gold in the world amounted to only to about eleven billions."

But the holders of these bonds and mortgages never imagined receiving or wanting actual gold; all the gold clause meant to them was that they should be paid in gold-standard money. The Government, on a gold basis, has redeemed tens of billions of gold bonds without paying out a dollar of gold coin. Scores of billions of private gold bonds have been redeemed in the same way. It is only when people begin to doubt the integrity of money and the word of the Government that they think of demanding gold, according to the contract - the actual gold. The argument that there is not enough gold to redeem all outstanding bonds and mortgages on demand is too naive. You might as well say that the United States Steel Corporation or the Pennsylvania Railroad must have at any minute, cash in bank enough to redeem all its outstanding bond and mortgage debt. That is not what bond and mortgage debt is for - to be redeemed in demand in anything. Bonds and mortgages do not come due all at once. They come due serially, as the debt matures and dies. You might as well say that, because all the people living will certainly die, we must have on hand 125,000,000 coffins, as to say we must have on hand an amount of gold or money equal to the amount of all bonds and mortgages outstanding because the debt they represent will certainly all come due. Put in one pile of all gold, all the jewelry, all the commodities and merchandise existing at a given time, all the manufactured goods, still the value would not equal the amount of bonds and mortgages outstanding, which means that if you cannot imagine redeeming bonds and mortgages in gold, all at once, neither can you imagine redeeming them in anything all at once. They are redeemable only in a stated, serial manner, out of the perpetual stream of wealth. And finally, if the Government cannot redeem its bonds as they come due in the 100-cent dollar, neither on its own statement of the absurdity can it redeem them in a 50-cent dollar, and all it will have done will have been to make an impossibility one-half as impossible.

Higher Wages, Higher Prices

Next was the Industrial Recovery Act. This also was conceived in an unexpected manner. First, under the subject heading, Unemployment, was the simple imperative: Men must have jobs; therefore, somehow, work must be provided. The obvious thing was a great program of public works, Federal, state and municipal, to be financed wholly or in part by the Federal Government. The aggregate of the Federal expenditures was fixed at $3,300,000,000; but the idea here was that instead of printing the money the Government should raise it by special taxes, which was , of course, a sound idea. Then other ideas began to arise. No imaginable amount of money spent for public works would absorb the nation's total unemployment. What of the remainder, the larger part of it? Although public expenditures on the scale proposed would benefit industry, still it was possible that industry, without hiring any more labor, even without increasing wages, would simply increase its output in order to provide the materials required for public works, and thus, like a hungry desert, selfishly soak up the flood of public money. No. Some way must be thought of to oblige industry to increase employment in a manner parallel to the public works program, that is, to act with the program instead of to ride it. Moreover, to increase employment alone, that would not be enough. Wages must rise, because now that the agricultural problem has been solved by taxing food, the cost of living is bound to rise. Then another problem: If industrial wages rise, industrial cost will rise; as this happens industry will add the increased cost to prices and so manufactured goods may rise so fast, from the general effect of inflation plus a higher wage cost, that the farmer's increased buying power will be absorbed. Obviously, therefore, the natural selfishness of industry must be controlled and the only way to control it is for the Government itself to interfere, in the public interest.

Industrial Codes

Such was the train of ideas that led to the Industrial Recovery Act to which the original public- works act was then attached as Title II. In effect, this act declares the President to be the managing partner of all industry. As the managing partner he demands, first, shorter hours, in order that employment may be increased; secondly, higher wages, in order that the relative purchasing power of labor may be increased; thirdly, that as costs rise with higher wages industry itself shall absorb them, for a while at least, instead of raising prices in a vertical, selfish manner to meet the rising wage cost, for if it does this, not waiting for the Government to raise all prices in a horizontal manner by inflation, then that increase in the farmer's relative buying power already provided for will be only absorbed by industry and by industrial labor together.

In return for all this the managing partner offers industry, first, the privilege by agreement to rationalize, pool and limit production, with immunity from the anti-trust laws; second, the right to suppress cutthroat competition; and, third, the expectation that with the buying power of both agriculture and labor established on a rising curve the volume of business will expand very rapidly and industry in turn will see its own prosperity return.

To represent him as the managing partner, the President creates an Industrial Control Board, and delegates thereto his power to pet industry or to bite it. Good industry will write its own code of behavior and its own bill of undertakings as to hours and wages, and when these have been approved by the managing partner himself, which gives them the force of law, the industry may police itself to make itself keep the law, and that will be a happy partnership. Bad industry, unable to agree upon a proper code, will have one imposed upon it by the managing partner, and the Government will police it, and if that industry protests, the managing partner will say: "Very well. Since you are in spirit a non-cooperating industry, contrary to the public interest, you are sentenced to go under a license system. Only those members of your industry who agree to accept this code shall be licensed, and only such as are licensed may do business at all."

It is foreseen in the act that if it works, , then food, labor and merchandise will be so much dearer here than anywhere else that the whole world will be trying to sell goods in this market. In that case the President is authorized to regulate imports and if necessary to forbid them.

In this arsenal of powers there is a weapon for any occasion. That was intended. Any idea of power that presented itself was liable to be seized and clothed with law, not that it was needed but only that it might be. That is why so many ideas are in conflict.

Thus, the idea of sweeping away trade barriers in order that there might be a great revival of world trade was contradicted by the idea of erecting impassible trade barriers to protect a purely national program.

The idea of devaluing the dollar was to make American good cheap to the foreign customer, if you were thinking of world trade; but it was to make American goods dear, if you were thinking of inflation within.

The idea of raising wages to increase the buying power of labor is inconsistent with the idea of raising prices by inflation, for the effect of raising prices is to reduce the buying power of wages.

The idea of saving the bank depositor is incompatible with the Thomas idea of transferring to the debtor class the wealth represented by bank deposits.

The idea of saving farmers and small homeowners by substituting a generous Government for the cruel private mortgage holder, by an exchange of Government bonds for private mortgages, is apparently innocent of the fact that the private mortgage holders are thereby bailed out and saved, and if this is not a contradiction, then it is that we believe in the magic of public credit to save both creditors and debtors at one stroke.

To the academic mentality there is no confusion in contradiction. The trouble hitherto has been, with private selfishness in control of the economic scheme, that there was an anarchy of contradiction. But contradiction is itself a principle. Consider the planned dissonance in a grand piece of music. That shall be the difference hereafter. Everything shall be planned and controlled in the public interest, even discord. The economic machine is a vast organ. The music is written in statistical curves. To change the curve of production, you press this key; to change the curve of consumption, that key; or to regulate the curve of stock-market speculation another one marked "money and credit control," and so on. They talk of overcurves and undercurves, as if they were musical tones. And they say that if some of the effects are startling at first, that is because the economic ear is accustomed only to primitive sounds.

A Touch of Optimism

There are yet other reasons why one who would speak of the effects must do it with some reserve. All the tones are in suspense. There are no finished effects. We are in the overture only, and the piece is strange. Moreover, it is true that some of the new sounds have been very pleasing.

The first and all-controlling fact was a change of feeling in the entire country, from worse to better. It began at once and grew steadily as in every direction signs multiplied of a real physical improvement in the state of economic being. How much of this was owing to any new cause and how much of it was but the deferred reaction from a state of abnormal depression, nobody was able to say. Nevertheless, the physic relief was so tremendous that nobody really cared. Everbody said: "Whatever the cause we are at last about to be delivered."As securities advanced, as common stocks doubled and trebled in value, hundreds of thousands of security holders - banks, institutions and individuals - who had been under water for three years, said or thought: "If this is inflation, more of it." In three months the quoted value of securities listed on the New York Stock Exchange increased $20,000,000,000. Agricultural commodities went up so fast that before the Department of Agriculture could organize its system of benefits and rentals the purchasing power of the farmer was well restored. Wheat that had been 42.125 cents in December was a dollar a bushel in July. Cotton more than doubled in price.

The rise was in three phases. There was first the moderate phase that needed no explanation other than the change of feeling. After the passage of the Agricultural Adjustment Act, with its Thomas amendment authorizing inflation, both securities and commodities began to rise immoderately. Speculators were anticipating the effects of inflation. For awhile conservative commentators kept saying: "Be careful. There is no inflation yet. Merely, it has been authorized. The President may suddenly decide that the expectation of it has produced the effect he wants and so leave the dollar as it is."

These voices were suddenly silenced by the joint resolution of Congress repudiating the gold clause in Government bonds. After that there was no doubt that the President had committed his mind to inflation. Definitely, the country was off the gold standard.

The American dollar began at once to fall. In terms of what did it fall? In terms of what the British would give for it in their paper-pound sterling, or what the French would give for it in their gold- standard francs. That is to say, the American dollar was priced in other people's money because it had no certain value of its own in terms of gold or anything else. As the dollar fell - to 90 cents, to 80 cents, to 70 cents - in terms of other people's money, everything speculatively priced in dollars - wheat, cotton, raw materials, stocks and bonds - advanced accordingly. The advance was very violent. Day after day the newspaper headline was : "The dollar falls. Commodities and securities rise. Wild rush to buy." And, whereas, before people had been speculating in commodities and securities for a rise justified by the foreshadowed economic recovery, now they were gambling on the fall of the American dollar, because, as the dollar declined, the speculative value of everything priced in dollars was bound to go up. The American passion for gambling was dangerously revived. Brokers offices were suddenly crowded, as in the boom days of 1928 and 1929, and the unemployment problem was solved in Wall Street.

Inflation's First Dilemma

The unexpected sum and suddenness of these effects produced the first dilemma of inflation. The World Economic Conference in London came to a standstill because the American delegation could not act until the President made up his mind which way to go - that is, whether to go on with the idea set up in his message to the fifty-four nations on May sixteenth, saying the conference "must establish order in place of the present chaos by a stabilizing of currencies, by freeing the flow of world trade and by international action to raise price levels," or to postpone the international solution and pursue this new and startling vision of national recovery under the stimulus of independent inflation. And for several days there was the dramatic spectacle of the whole world in an uproar, trying to guess which way he would make up his mind and at what point he would, by simple decree, arrest the fall of the dollar, and the President himself serenely navigating the Amberjack II off the New England coast, with power in his oilskin pocket to fix the gold value of the dollar at any figure he might see fit, down to 50 cents.

His problem was very difficult. He did not know, nor could anybody know, what the consequences would be of fixing the dollar at any value. If he made it too high, prices would fall, and that would be bad; if he fixed it too low the speculators would make a great killing, and that would also be bad. What a strange anxiety for the President! Every speculator in the world trying to outguess him, and his the responsibility to outguess him - in the public interest.

The Dollar Goes Native

Having made up his mind to repudiate the May idea of an international stabilization of currencies, having stunned the World Economic Conference by his statement , July fifth, that the "Revaluation of the dollar in terms of American commodities is an end from which the Government and people of the United States cannot be diverted," and the dollar having in that case gone native, the President's next problem was how to price a native dollar in native terms, independently of the world's prejudice. Then the idea of devaluing it - in terms of gold - to a point at which its purchasing power would be what it was in the mid-prosperity time of, maybe, 1924- 25 - in terms of basic commodities - the exact point to be determined by statistical method. It might be a 60-cent dollar.

This may sound very complicated. In fact, it is much more complicated than it sounds. We had those happy prices in 1924-25 with a 100-cent gold dollar and with much less actual gold and paper money than we now have. If you ask why, in that case, it is necessary to devalue the dollar and print more paper money in order to have those prices back, the answer is simple. Nobody knows.

Doctor Moley says: "One of the superb assurances that the President has given the country in connection with some of this legislation is that it is frankly experimental. He will inform the country if it fails with the same straightforwardness with which he asked to country to adopt it."

Suppose it does not fail. Then what? Doctor Tugwell, Assistant Secretary of Agriculture, one of the next lesser representatives of the academic mentality, says: "We possess every needful material for Utopia, and nearly everyone knows it; it is a quite simple conclusion in most minds that control that control ought to be taken out of the hands of people who cannot produce it from the excellent materials at their disposal."

But is there a price to pay for Utopia? The money price may not be important. Whatever it is, it will be divided between the rich and that forgotten man who kept his private budget balanced, was never in debt and had put something by in a savings account, or perhaps in a Government bond. Still, one may be permitted to glance at it. Exclusive of the ordinary expenditures of the Government, the total emergency dispositions of public credit by the Congress that in 100 days enacted the revolution - appropriations, authorizations and contingent liabilities - were as follows:

First, direct appropriations and authorizations:

Grants to states for unemployment relief


To expedite certain public works


Loans to the Joint Stock Land Banks


To the Farm Loan Commissioner for direct loans to farmers


For farm relief rentals and benefits


For Federal Land Banks on account of depleted funds and loss of interest


To the Farm Credit Administration to make loans for crop production and marketing


For capital in the Home Owners' Loan Corporation


To buy preferred stock in Federal Loan & Savings Associations


For capital in the Federal Bank Deposit Insurance Corporation


For public works, under the National recovery Act


Total direct appropriations and authorizations


 Then the contingent liabilities:

On account of bonds to be issued by the Federal Land Banks, guaranteed by the Government


On account of bonds to be issued by the Tennessee Valley Authority


On account of bonds to be issued by the Home Owners' Loan Corporation, guaranteed by the Government


On account of bonds to be issued by the Federal Deposit Guarantee Corporation


Total contingent liabilities


Add direct appropriations and authorizations as above


Grand total emergency dispositions of public credit


Much more important than eleven billions of dollars is the moral cost. The third consequence of revolution, beyond the transfer of advantage and wealth, is a disaster of moral distinctions. What happens when the government breaks its word? What happens when you cannot believe what is written on the face of its bonds? What happens to the private sense of contract when the Government with entire impunity may repudiate its contract all creditors and be applauded for it?

On April twenty-third the Government offered $500,000,000 three-year 2.875 per cent Treasury notes, recommended them to particularly small investors and explicitly said: "The principle and interest of the notes will be payable in United States Gold coin of the present standard of value." Only thirty-three days later, by joint resolution of Congress, the Government repudiated this contract, declared the gold clause in this and all other Government obligations to be contrary to public interest and therefore invalid, and asserted its right to pay the notes in any kind of paper money it might see fit to print. There was no monetary or economic necessity for doing this; the only reason for doing it was that the gold clause of the contract stood in the way of the Government's purpose to redistribute the wealth and income of the country by inflation.

In the Securities Act the Government imposed upon the private issuer of securities, for the protection of investors, the law of seller beware. Then for its own purposes it acted on the old jungle law of finance - the law of buyer beware.

Afterward the sophists said: "But you see, people still have faith. Government bonds are very strong in the market place." True, the quotations were strong, but that was because Government bonds were priced in dollars debased. There was nothing else to price them in. A Wall Street house doing exactly what the Government did with its issue of $500,000,000 notes to small investors, would be open to prosecution under the new Securities Act.

Comments: After studying this article, I began to realize that the system of government we live under today did not have its origins in the Constitutional Convention of 1787. It had its origins with the New Deal, which started with this emergency session of Congress in the spring of 1933. We shall see that FDR will be re-elected in another landslide in 1936, even though he and his associates - the Brain Trust - deceived and robbed many people by inflation. The reason for this is not difficult to understand. I've been a common worker all my life, and I have seen that, no matter where I've worked in the United States, most people live from paycheck to paycheck. They have little or no savings or investments. They represent the vast majority of the people. The same, obviously, was true back when FDR was president. The people who benefitted from the inflation far outnumbered the ones who were robbed by it, and this helped FDR to become very popular with many people. Also, take note of what was said about the Supreme Court getting a "new mind," because we shall soon see the court being viciously attacked by FDR and his followers because the justices stood their ground for a time and refused to violate their oaths to support the Constitution like many members of Congress did by allowing FDR to get his unconstitutional powers. Notice that this article pointed out that laws that were "more and more daring" were introduced into Congress by FDR and his Brain Trust as time went on. This is obviously because FDR and his Brain Trust did not know at first if enough members of Congress were willing to violate their oaths of office to give FDR the powers he desired. Upon realizing that there more than enough members willing to do this, FDR and his Brain Trust became "more and more daring" with the laws that they were introducing into Congress. This emergency session of Congress was, in substance, a coup d'état . We have been living under a de facto government since this time. A de facto government is defined as: A government wherein all the attributes of sovereignty have, by usurpation, been transferred from those who had been legally invested with them to others, who, sustained by a power above the forms of law, claim to act and do act in their stead. 30 Am Jur 181. Law Dictionary, James A. Ballentine, Second Edition, 1948, page 345.

Back to Old Weekly Press Table of Contents